Opinion of the European Central Bank of 30 March 2000 at the request of the Portuguese Ministry of Finance on a draft decree law that aims to implement, in the Portuguese legal system, Directive 98/26/EC of 19 May 1998 on settlement finality in payment and securities settlement systems (CON/00/04)
Date: 2000-03-30
Institutions: European Central Bank
Subjects: Portugal, approximation of laws, national law, payment system, securities

OPINION OF THE EUROPEAN CENTRAL BANK

of 30 March 2000

at the request of the Portuguese Ministry of Finance on a draft decree law that aims to implement,

in the Portuguese legal system, Directive 98/26/EC of 19 May 1998 on settlement finality in

payment and securities settlement systems 

(CON/00/04)

1.  The  European  Central  Bank  (ECB)  received  on  4  February  2000  a  request  from  the  Portuguese

Ministry of Finance for an ECB Opinion on a draft decree law (hereinafter referred to as the “Draft

Law”) implementing in Portugal Directive 98/26/EC on settlement finality in payment and securities

settlement systems (hereinafter referred to as the “Directive”).

2.  To the extent that the  Draft  Law  represents  the  implementation  of  the  Directive  in  the  Portuguese

legal  system,  the  Portuguese  authorities  were  not,  strictly  speaking,  legally  obliged  to  consult  the

ECB under Article 1 (2) of Council Decision (EC) 98/415 of 29 June 1998 on the consultation of the

European Central Bank by  national  authorities  regarding  draft  legislative  provisions.  However, the

ECB is seeking to promote proactively a harmonised EU-wide implementation of the Directive in the

legislation of the Member States, in order to foster maximum transparency and legal certainty for the

closely  connected  payment  and  securities  settlement  systems,  and  to  ensure  a  level  playing-field

throughout the European Union. In view thereof, the ECB very much welcomes the opportunity to

give its opinion on the Draft Law. 

3.  The ECB understands that this Draft Law deals only with the implementation of provisions related to

payment  systems,  while  the  part  of  the  Directive  dealing  with  securities  settlement  systems  was

implemented by Decree-Law 486/99, of 13 November 1999, and entered into force on 11 December

1999  in  the  part  where  general  provisions  and  provisions  dealing  with  insolvency  proceeding  of

participants  are  concerned  (Title  V,  Chapters  I  and  III).  For  the  remaining  parts  of  Title  V,  one

comes into force only after approval of operational regulations of the securities settlement systems to

be  registered  with  the  Securities  Market  Commission  until  1  September  2000  (Chapter  II,

Operations);  and  the  other  comes  into  force  on  1  March  2000  (Chapter  IV,  Management).  Even

though Member States are not bound to use any particular form or methodology when implementing

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EC  Directives  (Article  249  of  the  EC  Treaty),  the  ECB  is  of  the  view  that  this  split-up  in  the

implementation of the Directive 98/26/EC between issues related to securities settlement systems and

payment systems is somewhat artificial, especially in light of the fact that the Draft Law also covers

securities given as collateral but not securities settlement systems. In particular, taking into account

that the definitions used in the Directive 98/26/EC are common to payment  systems  and  securities

settlement systems, the fact  that  definitions  used  in  Decree-Law  486/99  of  13  November  1999  are

not coincident with the definitions used in the Draft Law is a matter of legal concern. It is the opinion

of  the  ECB  that  consistency  between  the  two  laws  should  be  envisaged,  as  there  is  a  strong

connection  between  the  securities  settlement  systems  and  the  payment  systems.  Using  different

definitions  and  applying  different  principles  on  similar  activities  and  procedures  may  increase  the

legal uncertainty and operational risks. 

In particular, it should be noted that the definition of securities in the Draft Law reproduces section B

of the Annex to Directive 93/22/EEC, as mentioned in Article 2(h) of the Directive, whilst the same

is  not  true  for  the  definition  of  securities  contained  in  Decree-Law  486/99  of  13  November  1999,

thus giving rise to potential doubts in interpretation and application of legal concepts and definitions.

Is  also  not entirely  clear to the  ECB  how the  definition  of  netting  contained  in  Article  2(k)  of  the

Directive was implemented into Portuguese law since it is used both in the Draft Law (Article 3) and

in Decree-Law 486/99 of 13 November 1999 (Article 283) but never defined. The ECB is aware that

Portuguese law contains a definition of netting (Article 847 of the Civil Code), which is common to

other  continental  systems.  However,  the  wider  scope  of  netting  as  foreseen  in  Article  2(k)  of  the

Directive  is  not  covered  by  such  definition  and  by  the  corresponding  regime.  Therefore,  the  ECB

considers that existing civil law provisions would not provide for the appropriate implementation of

Article  2(k)  of  the  Directive.  For  that  reason,  it  is  the  understanding  of  the  ECB  that  proper

implementation  of  the  Directive  would  require  a  special  definition  of  netting  attached  to  a  special

regime. 

4.  With  respect to  article  1(b)  of the  Draft  Law, the  ECB  notes  that the  Draft  Law  introduces  a  new

definition of “credit institution” rather than referring to the definition already contained in the legal

framework  for  credit  institutions  and  financial companies  laid  down  in  Decree-Law  298/92,  of  31

December, implementing Article 1 of the First Banking Co-ordination Directive (77/780/EEC). This

is  particularly  relevant  since  for  the  definition  of  “investment  firm”  in  article  1(c),  a  reference  is

made  to  the  Investment  Services  Directive  (93/22/EEC).  The  proposed  definition  of  “credit

institution” comprises “any bank integrated in the European System of Central Banks and any postal

money order service”. The ECB prefers that this part be taken out of the definition also considering

that, where necessary, the ESCB is already mentioned separately and that the institutions set out in

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the list of Article 2(2) of the First Banking Co-ordination Directive (77/780/EEC) do not comprise

Portuguese  institutions.  It  could  also  be  considered  to  make  reference  to  Article  1  of  the  First

Banking Co-ordination Directive (77/780/EEC) or otherwise to Article 2 of Decree-Law 298/92, of

31 December. 

5.  With regard to Article 1(l) of the Draft Law and the definition of 'transfer order' in connection with

Article 3(1) where reference is made to the State and other public persons, it would be beneficial to

reproduce more literally the text of article 2(i), first indent of the Directive, since Article 3(1) of the

Draft Law could be interpreted in the sense that private persons would not fall under its scope. 

6.  With regard to article 1(m) of the Draft Law and the definition of “insolvency proceeding” the ECB

notes that a reference is made to “obligations or associated collateral securities” where the Directive

mentions  “payments”.  The  distinction  between  “obligations”  and  “payments”  is  that  the  latter  is  a

discharge  of  the  former;  a  payment  being  the  correct  and  complete  fulfilment  of  a  pecuniary

obligation (by way of a final transfer of the absolute availability of the money due to the creditor). As

a result, the ECB would prefer that the text of the Draft Law would correspond more closely to the

text of the Directive.

7.  With regard to article 1(o) of the Draft Law and the definition of “collateral security” the ECB would

prefer that also repurchase or similar agreements be mentioned, as it is the case in Article 284(3) of

Decree-Law  486/99.  Indeed,  for  reasons  of  consistency  between  the  two  laws  implementing  the

Directive and to avoid legal uncertainty associated with the use of repurchase or similar agreements

for  purposes  other  than  securing  rights  and  obligations  potentially  arising  in  connection  with  a

system, as defined in Article 2(a) of the Directive, it would be advisable that repurchase or similar

agreements are expressly mentioned in the Draft Law, as it is the case in Article 284(3) of Decree-

Law 486/99, thus avoiding a vague formulation as currently drafted. 

In  addition,  the  ECB  notes  that  the  definition  of  “collateral  security”  contained  in  the  Draft  Law

limits the cause of granting collateral to “credit provided to participants and to banks integrating the

European System of Central Banks” whereas the Directive more broadly states “for the purpose of

securing rights and obligations potentially arising in connection with a system, or provided to central

banks  of  the  Member  States  or  to  the  future  European  central  bank.”  In  this  particular,  the  ECB

would  prefer  that  the  text  of  the  Draft  Law  would  correspond  more  closely  to  the  text  of  the

Directive. 

8.  On article 6, the ECB is of the view that this represents a partial implementation of article 9 of the

Directive that is due to the dual implementation of the Directive as mentioned above (article 9(2) of

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the  Directive  has  been  implemented  by  Article  284(4)  of  Decree  Law  486/99,  of  13  November

1999). 

9.  The ECB confirms that it has no objection to this ECB Opinion being made public by the competent

national  authorities  at  their  discretion.  In  the  light  of  the  general  application  of  the  observations

made,  and  the  importance  to  the  international  financial  markets  of  a  uniform  application  of

Community law in this field, the ECB will arrange for this Opinion to be copied to  the competent

national authorities of Member States responsible for implementing the Directive. 

Done in Madrid on 30 March 2000.

The Vice-President of the ECB

[signed]

Christian Noyer